Are Medical Bills Considered Unsecured Debt?

Medical bills often present a significant financial burden. Understanding whether they are secured or unsecured debt is important for individuals navigating their financial obligations. This distinction influences how these debts are managed, the collection methods creditors can pursue, and their potential impact on financial standing.

Defining Secured and Unsecured Debt

Debt is broadly categorized into two main types: secured and unsecured. Secured debt is characterized by an underlying asset, known as collateral, which the borrower pledges to the lender. If payments are not made, the lender has a legal right to seize and sell this collateral to recover the outstanding balance. Common examples include mortgages, where the home serves as collateral, and auto loans, secured by the vehicle itself.

In contrast, unsecured debt is not backed by any specific asset. If a borrower defaults on an unsecured loan, the creditor cannot directly repossess any of the borrower’s property to satisfy the debt. Creditors extend unsecured loans based primarily on the borrower’s creditworthiness and ability to repay. Examples include credit card balances, personal loans, student loans, and utility bills. The fundamental difference between these debt types lies in the presence or absence of collateral, impacting lender risk and recourse.

Medical Bills as Unsecured Debt

Medical bills are considered unsecured debt. When an individual receives medical services, such as a doctor’s visit, surgery, or emergency treatment, they do not pledge any personal asset as collateral. The financial obligation arises from the services rendered, rather than from a loan agreement tied to specific property.

This classification means a hospital or medical provider cannot directly seize assets like a patient’s home, vehicle, or other possessions for an unpaid medical bill. The debt is based on the service itself, not on a secured loan where property can be repossessed. This differs from situations where medical debt is combined with a secured loan, such as using a home equity loan to cover medical expenses. In such cases, the new loan’s secured status is determined by the collateral pledged for that specific loan, not by the original medical bill.

How Unsecured Medical Debt is Handled

The unsecured nature of medical debt dictates how creditors pursue collection and the potential consequences. When medical bills go unpaid, healthcare providers initiate collection efforts, which may involve sending reminder notices and making phone calls. If the debt remains outstanding, often after 30 to 180 days, the provider may transfer the debt to a third-party collection agency.

Historically, unpaid medical bills sent to collections could negatively affect credit scores. However, significant changes have been implemented regarding medical debt reporting. As of July 2022, paid medical collection debt no longer appears on consumer credit reports. As of April 2023, unpaid medical collection debt with an initial balance under $500 has been removed from credit reports.

A one-year waiting period also exists before any remaining unpaid medical debt can be reported to credit bureaus, giving individuals more time to resolve billing issues. A recent rule finalized in January 2025 aims to prohibit lenders from using medical debt information in credit reports, though its full implementation may be subject to ongoing developments. Despite these changes, unpaid medical debt can still remain on a credit report for up to seven years from the date of the original delinquency.

While direct repossession of assets is not possible for unsecured medical debt, creditors can pursue legal action. A medical provider or collection agency may file a lawsuit to obtain a court judgment against the debtor. If granted, this judgment enables the creditor to pursue remedies such as wage garnishment or bank account levies. The timeframe for filing such a lawsuit, known as the statute of limitations, varies by state, ranging from three to ten years.

Medical debt is eligible for discharge in bankruptcy proceedings due to its unsecured nature. It can be completely eliminated in Chapter 7 bankruptcy, providing a financial fresh start. In Chapter 13 bankruptcy, medical debt can be included in a court-approved repayment plan, with any remaining balance discharged upon completion.

Many healthcare providers are willing to negotiate payment plans or reduced settlements for medical bills. Individuals can proactively contact billing departments to discuss options such as extended payment schedules, lump-sum discounts, or eligibility for financial assistance programs, including charity care. Initiating communication early can lead to more favorable outcomes.